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2/17/2011

No growth better than growth

Yes, it sounds contradictory. Growth is the essence of our economy and the vital ingredient to the good life we are having. How can no growth be better than growth? The old mature economies are flowing along with lower growth rate but maintaining a high quality of life. We have experienced many years of high growth and the quality of our life has improved by leaps and bounds. The thing is that we are now witnessing diminishing returns from our growth. In fact, while the rich are getting richer and enjoying real growth, the middle income and lower are not getting better, and many are not enjoying any real growth or bettering their living condition, despite good economic growth. A simple illustration, if economy grows by 5% and income grows by the same amount, broadly speaking, the people should enjoy a 5% growth in their disposable income or spending power. Or at least they should be slightly easier in their pockets. But not everyone got a 5% increase if the economy goes up by 5%. Yes, some got 10% or more increases. That’s why some are doing very well and very happy. Another problem is that the inflation beast that we have today is eating away everything. If inflation is 5%, everyone is back at status quo. If inflation is double or more, though the economy looks good, though the income goes a bit higher, there is really a net contraction in the spending power. It is negative growth to those whose income does not keep pace with inflation. On the other extreme, low economic growth with low inflation could be better when inflation is lower than economic growth and income growth. How much of our growth has been translated to the wealth of our people in the middle and lower income bracket? Are they really better off, sharing the growing economic pie, or are they starting to feel the strains in their pockets? A $100k increase in property price means many will have to work 5 to 10 years for nothing, not improving their income at all. This goes to the prices of cars, of high medical bills and other big ticket items. The couple of hundred dollars of salary increases are easily eaten up by the high cost of living of everything, from basic necessities, transportation, food on the table, and consumer durables. We may be in a situation when no growth or low growth is better off than high growth if the standard and cost of living can be maintained. At the rate inflation is eating up everyone’s income and savings, we should think carefully of chasing high economic growth for its sake. It could be an effort in vain. What is important is real improvement in standard of living, cost of living, not fictitious dollar increases when the value is depreciating by the days.

1 comment:

Matilah_Singapura said...

Inflation: Because we live in a fiat currency world, the chance of inflation is always present, because there is no immediate mechanism to prevent central banks from "printing money" or to increase the amount of "credit money" in the system.

Governments love inflation -- if they think they can get away with it, they will. The general public also loves inflation -- businesses hire, assets prices rise, interest rates are low, and you can "buy your dreams" with cheap and abundant credit. If you have bigger dreams, all you do is borrow some more.

Inflation is like a drug: most people in the public and in government are addicted to it.

The problems arise when not only asset prices rise but commodities and basic food -stuffs rise too. Wages lag behind CPI increases, and on the one hand EUPHORIA from rising asset prices and employment, plus the cheap abundant credit to finance Big Dreams, and on the othr hand too much debt (from excessive Dream financing), and the spiralling cost of simply staying alive: food, energy etc.

The main cause behind recent civil disobedience in the Arab countries is dictatorships. The TIPPING POINT which brought on this delightful recent spectacle was INFLATION: people simply can't afford to live.

The Chinese government needs a lesson and I am hoping (and urging any Chinese PRC reading this) that the PRC's rise up against their government and protest the rises in food and living expenses.

China's double digit growth is fuelled by a cheap Yuan --- they have been printing for years. However, who can really blame them? I attribute only 50% of the blame to the Chinese state. The other 50% is borne by the cuntry who supposedly is the "custodian" the "steward" of the world's reserve currency -- which is at present Banana Money.

As long as China, Japan and Helicopter Ben continue their "currency wars", the rest of the world will suffer.

Provided they actually produce marketable stuff, emerging markets and less mature economies tend to grow at faster rates than the older economies.

Older economies have old capital structures. If you are referring to the western world, you are talking about 500 years of industrial production, coupled with a financial sector like stock and credit markets, plus the evolution of education and political systems based on CAPITALISM.

In contrasts, emerging economies have had less than 100 years of industrialisation, and even less time to embrace CAPITLAISM -- which many have yet to fully embrace; as many not-so-free political economies of (say) Asia still impose labour restrictions, immigration controls, protective local legislation and other untenable bullshit which has no place in a borderless, globalised world with a free-wheeling marketplace for trade.

The evolution of capital structures are extensive as well as intensive -- meaning extensive in the sense that infrastructure grows (better roads, better energy grid, better MRT systems, better health and emergency response), and intensive -- emergence of a service sector -- better retail, better hairdressers, party planners, F&B, leisure...everything you'd expect a high-earning growing middle class are willing to spend their money on.

Economic growth figures are bullshit -- they are only an indicator -- one among many.

I look at the "middle class": a society is "doing well"if the middle class is growing. If it is shrinking -- like is it in many over-taxed, over-regulated WESTERN welfare states, you know there is trouble (and opportunity) ahead.

Asia: Middle class growing
The West: Middle class diminishing

Now you'll understand why there is so much migration to the Far East